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Jet Airways: ‘Extraordinary’ saves the day - Views on News from Equitymaster

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Jet Airways: ‘Extraordinary’ saves the day

Aug 1, 2007

Performance summary
  • Sales grow 11% YoY in 1QFY08, as revenues from international operations more than double. Domestic business witnesses a marginal 3% YoY decline.

  • EBITDAR margins contract by 30 basis points to 12.4% on account of higher employee and other expenses (both as percentage of sales).

  • Adjusting for forex gains, the company has reported a loss of Rs 981 m in 1QFY08, more than double of Rs 450 m in 1QFY07.

  • Load factor declines by 3.8% to 69.1%, whereas cost per ASKM lower by 12%

    Performance Summary
    Particulars (Rs m) 1QFY07 1QFY08 Change
    Financial performance - Standalone numbers
    Net Sales 16,230 18,067 11.3%
    Expenditure 14,166 15,831 11.8%
    Operating Profit (EBITDAR) 2,064 2,236 8.3%
    EBITDAR margins 12.7% 12.4% -
    Lease rentals 1,451 1,532 5.6%
    Other income 322 474 47.0%
    Interest 642 644 0.3%
    Depreciation 887 1,328 49.6%
    Profit before tax (595) (795) 33.6%
    Tax (145) 186  
    Extraordinary items - 1,290  
    Net profit (450) 309  
    Net profit margin (%) -2.8% 1.7%  
    No. of Shares   86.3  
    Price to book value (P/BV)   2.7  
    Price to sales (P/S)   0.9  
    Operating parameters
    ASKMs (m) 4,037 4,757 17.8%
    RPKMs (m) 2941 3,288 11.8%
    Revenue passengers (m) 2.81 2.68 -4.6%
    Load factor 72.9% 69.1% -
    Break-even load factor 76.0% 66.9% -
    Yield (Rs/RPKM) 4.72 4.71 -0.2%
    Cost per ASKM (Rs) 3.59 3.15 -12.3%
    No. of employees 8,744 10,820 23.7%
    Note: For glossary please click here

    What has driven performance in 1QFY08?
    Overall performance: Jet Airways reported 11% YoY increase in sales for 1QFY08. This was primarily aided by the international operations, which witnessed a growth of 104% YoY. Contraction in EBITDAR margins, however, slowed down the growth in operating profits (8% YoY). Increase in employee and other expenses (both as a percentage of sales) were responsible for the shrink in margins. The overall load factor for the quarter stood at 69.1% (a decline of 3.8% YoY), in comparison to the break-even load factor of 66.9%

    Cost break-up
    as a % of sales 1QFY07 1QFY08
    Employee cost 14.1% 14.6%
    Fuel expenses 36.1% 33.2%
    Commission on sale of tickets 8.1% 7.1%
    Other selling and distribution cost 3.2% 4.7%
    Other expeses 25.8% 28.0%
    Lease rentals 8.9% 8.5%

    The number of employees increased by 24% to 10,820 during the quarter. This coupled with an average hike of 10% in wages led to a 0.5% increase in employee cost (as a percentage of sales). Selling & distribution and other expenses too witnessed an increase. The negative impact of these items was however arrested to a major extent by the decline in fuel expenses. During the quarter, the company was able to pass on some of the increase in fuel expenses as it raised the fuel surcharge by Rs 150 per ticket. The overall cost per ASKM declined by 12% during the quarter.

    Domestic operations: Domestic operations, which account for 76% of the total revenues, witnessed a marginal decline of 2% YoY during the quarter. ASKMs on the domestic operations declined by 3% YoY, implying reduction in number of flights. During the same period, the domestic capacity grew by 38% YoY. According to the management, the strategy during the quarter was to protect the yields, rather than focusing on volumes i.e., ASKMs. In fact, the company has discontinued its flights on some of the loss making routes. The strategy seems to have paid off well as yields (Rs/RPKM) increased by 6% YoY to Rs 5.61. EBITDAR margins for the quarter, however, witnessed a decline of 130 basis points to 14.4%.

    Domestic operations
    Particulars (Rs m) 1QFY07 1QFY08 Change
    Net Sales 2,134 4,359 104.3%
    Expenditure 2,281 4,097 79.6%
    Operating Profit (EBITDAR) (147) 262 -278.2%
    EBITDAR margins -6.9% 6.0% -
    Profit before tax (817) (713) -12.7%
    Operating parameters
    ASKMs (m) 957 1,767 84.6%
    RPKMs (m) 635 1,158 82.4%
    Revenue passengers (m) 0.15 0.26 73.3%
    Load factor 66.4% 65.6% -
    Break-even load factor 55.9% 51.5% -
    Yield (Rs/RPKM) 2.71 3.05 12.5%
    Cost per ASKM (Rs) 2.54 2.46 -3.1%

    International operations: International revenues more than doubled in 1QFY08 on account of network expansion and improved load factors on the existing routes. During the quarter, Jet launched services on the Ahmedabad-Heathrow (London) route. Flight connecting Asian destination like Singapore, Kuala Lumpur and Bangkok (launched during the previous year) witnessed strong improvement in load factors as compared to the previous year. The Delhi-Kathmandu route continues to remain Jet’s legacy route with high load factors (93.6% in 1QFY08). The overall load factor for international operations stood at 65.6%, a slight decline over the previous quarter. The decline in load factor is mainly attributable to the new routes services launched by the company.

    Update on JetLite: Air Sahara, now rechristened as ‘JetLite’ will operate as a low cost carrier. Presently, 17 of Air Sahara’s aircrafts are flying with the rest expected to commence operations by October 2007 (a total of 24 aircrafts in the fleet). Some of the initiatives undertaken by Jet to prune down the operating cost include rationalization of manpower, reduction in rent on CRJ aircrafts, releasing of surplus premises and office spaces, and moving acquired aircrafts at Jet’s rates. Jet has already been successful in reducing the unit cost of JetLite by 15% and has managed to improve yields by 10%. The management expects JetLite to turn profitable by around 4QFY08.

    What to expect?
    At the current market price of Rs 735, the stock is trading at 2.8 times its current book value (as of 30th June 2007). Going forward, we expect yields in the domestic market to increase on the back of price rationalisation and a slowdown in the capacity addition rate. However, with the second quarter typically being the weakest period for domestic operations, there could be some medium-term pressures. As far as international operations are concerned, we expect improvement in load factors on some of the newly launched routes. The company is also intensifying relationships with more international airlines to provide increased connectivity to its customers. The management expects the share of international revenues to go up to 50% from the current 25% over the next one year. Jet has 13 aircrafts on order, which will be utilised to strengthen its feeder routes. Inability of the company to pass on the increase in fuel prices and the delay in fund raising plans are the key concerns.

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Feb 15, 2019 (Close)


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